Land and Environment Court of New South Wales CITATION : Newcastle City Council v Wescombe [2008] NSWLEC 301 APPLICANT Newcastle City Council PARTIES : RESPONDENT Rebecca Alice Wescombe FILE NUMBER(S) : 40471 of 2007 CORAM: Pain J KEY ISSUES: Costs :- exercise of the Court's discretion to award costs where no finding on the merits and proceedings dismissed in part - whether disentitling conduct Civil Procedure Act 2005 s 56 Environmental Planning and Assessment Act 1979 LEGISLATION CITED: Evidence Act 1995 s 131 Revised Professional Conduct and Practice Rules 1995 Uniform Civil Procedure Rules 2005 r 42.20 Calderbank v Calderbank [1976] Fam 93 CASES CITED: Kiama Council v Grant (2006) 143 LGERA 441 Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 DATES OF HEARING: 22 October 2008 23 October 2008 DATE OF JUDGMENT: 27 October 2008 APPLICANT Mr M Fraser SOLICITORS Sparke Helmore LEGAL REPRESENTATIVES: RESPONDENT Mr G Carolan SOLICITORS Bilbie Dan JUDGMENT: THE LAND AND ENVIRONMENT COURT OF NEW SOUTH WALES Pain J 27 October 2008 40471 of 2007 Newcastle City Council v Wescombe JUDGMENT ON COSTS 1 Her Honour: These Class 4 proceedings were set down for hearing on 22-24 October 2008. The Amended Class 4 application sought a declaration that the Respondent was in breach of the Environmental Planning and Assessment Act 1979 (the EP&A Act) (prayer 1). It also sought an order that the Respondent undertake certain engineering and landscaping work within 60 days of the order being made (prayer 2). After the opening address commenced the parties engaged in further settlement discussions and ultimately agreed that orders be made by consent. It was unnecessary for the hearing to continue. The orders made were to the effect that the Respondent undertake specified works in a certain timeframe. The orders were made without admission of liability in relation to the breach of the EP&A Act (prayer 1). On the Council's application the proceedings were otherwise dismissed except as to costs. Each party now seeks part of its costs. 2 The removal of retaining walls, excavation and filling on the Respondent's land which gave rise to the proceedings took place in November 2006. A landslide occurred in and around the Respondent's property in April 2007 following heavy rain. These Class 4 proceedings were commenced by the Council on 21 May 2007. A settlement conference was held on 21 April 2008. The first hearing in May was vacated on the Council's application because the parties had been directing their resources towards settlement and were not ready to proceed to hearing. The Amended Class 4 application was filed on 22 July 2008. A defence was filed on 25 September 2008 stating that the Respondent desired to undertake the work identified by the Council in a joint engineering report but had been prevented from doing so by the Council, and there was a need for remedial work to occur on a defective sewer line as well as additional works by adjoining owners. 3 Both parties appointed engineers to advise them. In a joint report dated 26 February 2008 the engineers identified the work necessary to remedy the situation on the Respondent's land and neighbouring land in the categories of urgent, high priority and longer term. The urgent and high priority works required action by two neighbours and the Hunter Water Corporation (HWC) in moving its sewer pipe which currently lies across the Respondent's land. In a letter dated 20 October 2008 shown to the Court the HWC wrote to the Respondent stating it considered it appropriate to complete its works in conjunction with landholders. The HWC also requested advice as to her expected program of works. In other words the work identified as urgent and high priority by the joint engineers' report has yet to be undertaken by those responsible. The longer term engineering work identified was the provision of retaining walls and suitable landscaping on the Respondent's land. That work cannot be undertaken until the urgent and high priority work has been undertaken. The engineers disagreed on the cause of the landslide which occurred in April 2007. 4 An agreed bundle of correspondence was tendered in evidence. The Council also read the affidavit of Mr McKelvey, solicitor, dated 14 May 2008 which dealt with a successful application to vacate hearing dates in May 2008. The correspondence included that between the respective parties' solicitors between 11 May and 19 July 2007 in relation to obtaining geotechnical advice and the Respondent agreeing to undertake stabilisation work. 5 The correspondence tendered shows that there were numerous without prejudice settlement offers made by the Council's solicitors on 24 April 2008 and 4 June 2008 and also offers made in open correspondence on various other dates. The parties agreed that the without prejudice correspondence should be provided to the Court in relation to the costs argument as provided for by s 131(2)(a) of the Evidence Act 1995. 6 On 24 April 2008, following a settlement conference, a without prejudice letter was sent from the Council's solicitor to the Respondent's solicitor offering to resolve the proceedings and noting the possibility of discontinuing related local court proceedings if the Respondent performed the work and paid the Council's costs. That offer was rejected by the Respondent's solicitor by letter on 2 May 2008, stating disagreement with the Council's assertions. A without prejudice offer was made in that letter that the Respondent would perform the work if the Council paid her legal costs to date of $80,000.00. A reply from the Council's solicitor on 19 May 2008 stated no instructions had been received to make another offer and that an application to vacate the hearing date had been made. On 4 June 2008 the Council's solicitor made a conditional and without prejudice offer that the parties bear their own costs of the proceedings and the local court proceedings would be discontinued if the Respondent entered a deed to perform and to undertake to perform work. Further letters from the Council's solicitor were sent on 25 June and 1 July 2008 after no response to the 4 June 2008 letter was received. The 1 July 2008 letter openly restated the offer of 4 June 2008 on a "without prejudice save as to costs" basis in accordance with Calderbank v Calderbank [1976] Fam 93 in light of the possibility of increasing costs. The Respondent's solicitor replied on 2 July 2008 stating that he would seek that the matter be referred to mediation. On the same day an open reply was sent from the Council's solicitor stating there was no utility in seeking further mediation and that the Council was prepared to accede to an order that each party bear its own costs if the matter was finalised at a 4 July 2008 mention, and that costs of that mention would be borne by it as a compromise. The letter enclosed a proposed Amended Class 4 application and instructions to proceed to hearing if the offer was not accepted. A further open letter dated 10 July 2008 was sent by the Council's solicitor stating that the previous offer would remain open until a further mention on 11 July 2008 and that the letter would be relied on for any costs application if necessary. On 10 October 2008 the Council's solicitor sent an open letter assessing the prospects of success of the Respondent's case by reference to its evidence and recommending reconsideration of the offer to resolve the proceedings. Another open letter dated 10 October 2008 was sent by the Council's solicitor setting out possible issues for trial and repeating the offer to settle. Council's submissions 7 The Council argued that its costs ought be paid on an indemnity basis from 4 June 2008, the date of the reasonable offer of settlement that the Respondent enter into a binding agreement to undertake specified engineering and landscaping work and the proceedings would not proceed with each party paying its own costs. There was no response from the Respondent to that offer. Each party should otherwise pay his or her own costs up to 4 June 2008. 8 The Council relied on Kiama Council v Grant (2006) 143 LGERA 441 at [80] to argue the circumstances of this case came within the category identified of one party surrendering to another where a party consents to orders substantially in the terms sought by the other party. In such cases the usual presumption is that each party pay its own costs. The Council submitted however that there had been unreasonable conduct by the Respondent in failing to respond properly to or accept reasonable settlement orders. Relying on Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin (1997) 186 CLR 622 (as referred to in Kiama Council v Grant) it was argued the Court would be able to conclude that one of the parties has acted so unreasonably the other party should obtain the costs of the action. The numerous offers to settle sent on 4 June, 1 July, 10 July and 10 October 2008 were not responded to at all or not in a way dealing with the substance of the offer. The Council had no choice but to continue with the litigation in the absence of a binding agreement from the Respondent to do the work. That agreement was not forthcoming until the first day of the hearing on 22 October 2008. As soon as the Respondent indicated her preparedness to agree to binding orders the Council agreed to settle the matter. 9 There is a clear link between the declaration of breach sought in prayer 1 and the order to undertake work in prayer 2. By agreeing to the consent order to do work the Respondent also effectively settled the proceedings in relation to the declaration sought in prayer 1. Respondent's submissions 10 Rule 42.20 of the Uniform Civil Procedure Rules 2005 (the UCPR) applies in light of the orders made by the Court on 22 October 2008. Rule 42.20 provides: 42.20 Dismissal of proceedings etc (cf SCR Part 40, rule 8) (1) If the court makes an order for the dismissal of proceedings, either generally or in relation to a particular cause of action or in relation to the whole or part of any claim, then, unless the court orders otherwise, the plaintiff must pay the defendant's costs of the proceedings to the extent to which they have been dismissed. … 11 The orders were made by consent and without admission of liability in relation to the breach of the EP&A Act the subject of the declaration sought in prayer 1 of the Amended Class 4 application. As the Council applied for the balance of the proceedings to be dismissed in relation to a substantive part of the claim (effectively prayer 1) r 42.20 applies so that the Respondent's costs of the proceedings in relation to the breach of the EP&A Act ought be paid by the Council. 12 The declaration and injunctive orders sought by the Council in the Amended Class 4 application are not related. The orders for work to be done does not arise from the declaration of a breach in prayer 1. The Council was aware from February 2008, when the engineers' joint report was provided, of the work the various concerned landholders including the Respondent agreed was needed. This agreement required urgent and high priority work to be done by neighbouring landholders and the HWC in relation to moving the sewer line before the Respondent could do the landscaping work on her property. 13 The correspondence between 11 May and 19 July 2007 indicates the willingness of the Respondent to assist the Council with its investigation and resolution of the soil instability issues. She retained a geotechnical engineer to provide advice and investigate the cause of soil instability and undertook the stabilisation work he recommended at substantial cost. The Respondent's expert met with the Council's expert and other landholders and agreed on the appropriate work to be undertaken to resolve the substantial soil instability issues. There is dispute about the cause of that instability but agreement on what needs to be done. The Council has been aware since February 2008 that the Respondent was prepared to implement an engineering solution to stabilise the site, regardless of the cause. To do so however required action by neighbouring landholders and the HWC. When the May hearing dates were vacated Sheahan J suggested mediation. This approach was rejected by the Council and the matter was prepared for hearing. 14 Further, the amended orders sought by the Council in prayer 2 in the Amended Class 4 application filed on 22 July 2008 did not reflect the agreed engineering approach but simply sought an order that the longer term work be done by the Respondent in 60 days. (I note that the Council's counsel advised this form of prayer 2 in the Amended Class 4 application was filed in error. The amended order in prayer 2 should have been in the same terms as a draft Amended Class 4 application sent to the Respondent's solicitors with the letter dated 2 July 2008. The draft order required the Respondent to do engineering and landscaping work after other work specified in the joint engineers' report had been carried out by other neighbours and the HWC. It referred to remedying the breach, a matter disputed by the Respondent. The need to further amend prayer 2 to reflect what had been sent with the letter of 2 July 2007 was not discovered until the opening address. The orders made by consent reflected parts of prayer 2 in the draft application sent to the Respondent on 2 July 2008 not the form of prayer 2 in the amended application filed on 22 July 2008.) 15 There has been no hearing on the merits of whether the Respondent was in breach of the EP&A Act in undertaking work in November 2006 that required development consent. The Respondent has consistently argued that there was no breach by her of that Act. The Court can make an order for costs where there has been no hearing on the merits and the moving party no longer wishes to proceed with the action: Lai Qin at 624. 16 There is no utility in these proceedings which were commenced precipitately by the Council seven months after the alleged breach of the Act. The Respondent has contested the nexus the Council sought to draw between the alleged breach of the EP&A Act by the Respondent in carrying out the work on her land and the landslide. The landslide issues concern a number of properties and were not solely related to activity on the Respondent's property. Persisting with the claim after the joint report was produced in February 2008 was unreasonable. As a consequence of the settlement orders made the Council elected not to press for a declaration about the alleged breach of the EP&A Act notwithstanding there is no link between the declaration sought in prayer 1 and the order sought in prayer 2. Finding 17 There has been no hearing on the merits of the issues in dispute between the parties. There is therefore no determination of those issues to provide an "event" by which to determine costs. Each party seeks costs to varying degrees. Prayer 2 18 The consent orders made on 22 October 2008 address in part the order sought in prayer 2 by the Council, as amended orally in the opening address by the Council's counsel because the form of order in the amended application filed was different to that intended to be sought by the Council. The order made by consent requires the Respondent to do engineering work in a specified period after receiving notice from the Council that the urgent and high priority work identified in the joint engineers' report has been undertaken. The responsibility for that work falls on other people or bodies who are not party to these proceedings. The orders are made without admission of liability for any breach of the EP&A Act. This is different from the terms of the draft order in prayer 2 which referred to the work being necessary to remedy the breach of the EP&A Act. 19 Given that there has been settlement by the consent orders in relation to prayer 2 in such a way that the orders are largely in the terms sought by the application as effectively amended at the hearing, and applying the reasoning identified in Kiama at [80], each party ought to pay its costs of that part of the proceedings. I do not understand this part of the costs issue to be in dispute. Prayer 1 20 The declaration of a breach of the EP&A Act was a separate prayer (prayer 1) sought by the Amended Class 4 application and the consent orders were made without admission on that issue. The proceedings in relation to prayer 1 were effectively dismissed on the Council's application on 22 October 2008 when the order was made otherwise dismissing the proceedings. I agree with the Respondent's counsel's submissions that prayer 1 and prayer 2 are unrelated. There is no established factual or legal link between the declaration of a breach of the EP&A Act for the work undertaken on the Respondent's land in November 2006 and the consent order based on the amended prayer 2. There was a dispute up to and at the hearing of whether there was any breach of the EP&A Act. There was no agreement on the cause of the landslide as between the engineers although the Council sought to argue that the alleged illegal work caused that to occur. Further the necessary work to stabilise the area in and around the Respondent's land identified in the joint engineers' report requires other persons to do extensive work before the Respondent can. Consequently, I generally agree with the Respondent's submission that UCPR r 42.20 applies to the dismissal of that part of the Council's case concerning prayer 1. The application of that rule is subject to whether the Court considers such an order is appropriate (that is, unless the Court otherwise orders). 21 The Council was continuing to press the declaration sought in prayer 1 as at 19 May 2008 as stated in a letter from the Council's solicitors to the Respondent's solicitor of that date. The Respondent should have her costs in relation to the declaration sought in prayer 1 up to that point. There are aspects of the history of this matter from 4 June 2008 which require further consideration to determine if any costs order in favour of the Respondent ought be reduced. 22 The Respondent at all times disputed that she had acted in breach of the EP&A Act. The Respondent's counsel says that it was clear to the Council at all times that the Respondent was prepared to do the necessary work identified in the joint engineers' report. I note that the offer to that effect was not made openly until the defence was filed on 25 September 2008. Once no declaration of breach was sought, the payment of the Respondent's substantial costs incurred to defend the declaration sought in prayer 1 was necessary to resolve the matter. 23 While the avoidance of litigation is to be encouraged and this matter was able to be settled on the first morning of the hearing, the history of the matter suggests that the consent orders made could have been entered into much earlier in June 2008. Obviously if this had been done before the preparation for hearing much cost could have been avoided by the parties. The Council argued that the Respondent behaved unreasonably in refusing the letter offering settlement of 4 June 2008. That settlement offer was that the Respondent enter into a deed to perform the required works and that the Respondent undertake to the Court to carry out or cause to be carried out the long term works identified in the joint report. Each party was to pay its costs. The offer did not explicitly refer to the declaration in prayer 1 but the inference arises from the terms of the offer that the declaration would not be pressed. There was no response to that settlement offer by the Respondent's solicitor. The Respondent's counsel stated that silence clearly signifies a refusal. As the Respondent would only agree to settle on the basis that her costs were paid by the Council, as indicated in its letter of 2 May 2008, there was unlikely to be agreement on the offer of 4 June 2008. Given that the Council wrote again on 25 June and on 1 July 2008 and reiterated its offer of 4 June 2008 as a Calderbank offer and that no response was forthcoming from the Respondent that raises a concern about how the Council could resolve the litigation without proceeding to hearing in the absence of a response to a reasonable settlement offer, as I consider the offers were. The consent orders that were made on 22 October 2008 could have been made at that point. As submitted by the Council, the first time it was aware in a without prejudice document that the Applicant would undertake the works was when the Respondent's defence was filed on 25 September 2008. 24 It was inappropriate not to respond to a reasonable settlement offer as the offer of 4 June 2008 was in my view. It did not necessarily have to be accepted given the valid disagreement between the parties on the payment of costs but in failing to respond there was no alternative for the Council but to proceed with the matter. At that stage the defence had not been filed indicating a willingness to do the necessary work. While there was a suggestion of mediation by the Respondent's solicitor I agree with the Council's solicitor that process would appear to have little utility given the offer in the Council's letter of 4 June 2008. In the defence filed in September 2008 the Respondent stated that she intended at all times to undertake the work agreed in the engineers' joint report. At that point again it could also have been clarified that the parties were able to reach agreement subject only to costs being in dispute. It is unfortunate that there was not a greater focus by the legal representatives for the Respondent on such a possible outcome. 25 The failure to properly respond to settlement offers made in the course of proceedings is a relevant consideration in determining whether there has been unreasonable behaviour which is disentitling for cost purposes where in this case the without prejudice offers of settlement are available to the Court and a Calderbank offer was made by the Council. It is the overriding purpose of the Civil Procedure Act 2005 (s 56) to facilitate the quick, effective and cheap resolution of disputes. While that Act is directed to the conduct of litigation in Court and concerns case management processes before the Court such an approach to litigation also requires the active participation in settlement negotiations between the parties and their solicitors. Solicitors have a general duty to the Court under the Revised Professional Conduct and Practice Rules 1995 (NSW) to act with competence, honesty and candour. For example, under r 23 (r A.17A of the Advocacy Rules) a practitioner must inform the client about the alternatives to fully contested adjudication of the case which are reasonably available to the client, inter alia. That must relate to any proceedings leading up a to hearing and the conduct of those proceedings. Settlement discussions are likely to be a part of that process. I am not seeking to suggest there has been any specific breach of any relevant rule by the Respondent's solicitors. I am seeking to provide context for my comments on why the conduct of settlement negotiations is significant in a costs context. Were the circumstances outlined above the only pertinent matters, a reduction of the costs order in favour of the Respondent to some extent appears warranted. 26 The circumstances are further complicated however because the Council filed the Amended Class 4 application with the erroneous prayer 2 on 22 July 2008 and the Respondent could reasonably assume that was the order sought, as her counsel did until the opening address at the hearing. That order could not be complied with by the Respondent in light of the necessary hierarchy of work identified in the joint engineers' report. Seen in the light of that order, the defence filed by the Respondent is essentially clarifying for the Council that the Respondent will only agree to do the work in the manner identified by the joint engineers report. As the terms of the order actually sought were not clarified by the Council until the opening address, the Respondent's solicitors' overall conduct was not so unreasonable that the costs order ought be reduced. 27 Accordingly, weighing up all these factors suggests the Respondent should be awarded all her costs in relation to prayer 1. 28 It is preferable that I make orders which do not result in the parties engaging in lengthy taxation of costs to identify which costs relate to prayer 1 and which to prayer 2. I will seek the further advice of the parties before finally determining the appropriate percentage of costs I should order be paid by the Council to the Respondent, particularly as to whether a 50/50 split of total costs incurred as between prayer 1 and prayer 2 is appropriate. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.